Claremont Colleges
Scholarship @ Claremont
Scripps Senior Theses
Scripps Student Scholarship
2015
America’s College Promise: An Economic
Evaluation of President Obama’s Free Community
College Plan
Yue Guan
Scripps College
Recommended Citation
Guan, Yue, "America’s College Promise: An Economic Evaluation of President Obama’s Free Community College Plan" (2015). Scripps
Senior Theses. Paper 629.
http://scholarship.claremont.edu/scripps_theses/629
This Open Access Senior Thesis is brought to you for free and open access by the Scripps Student Scholarship at Scholarship @ Claremont. It has been
accepted for inclusion in Scripps Senior Theses by an authorized administrator of Scholarship @ Claremont. For more information, please contact
scholarship@cuc.claremont.edu.
AMERICA’S COLLEGE PROMISE: AN ECONOMIC EVALUATION OF PRESIDENT OBAMA’S
FREE COMMUNITY COLLEGE PLAN
By
MICHELLE GUAN
SUBMITTED TO SCRIPPS COLLEGE IN PARTIAL FULFILLMENT OF THE DEGREE OF
BACHELOR OF ARTS
PROFESSOR KERRY ODELL
PROFESSOR LISA SULLIVAN
APRIL 23, 2015
ABSTRACT
In his 2015 State of the Union Address, President Obama announced “America’s College
Promise,” a plan to make community college free for all American families making less that
$200,000. In this thesis, I provide an analysis of the plan and provide an evaluation of its
potential impact on the education attainment gap in the United States. I also evaluate the plan’s
various components and assess its potential impact on community college student enrollment,
completion, and transfer to four-year universities. Lastly, I offer recommendations for
improvement.
2
ACKNOWLEDGEMENTS
Thank you to my readers Professor Sullivan and Professor Odell for your guidance, invaluable
insight, and patient support throughout the yearlong thesis writing process. Thank you to
Professor Pedace for your unfailing positivity during Fall seminar where my thesis research
began.
I would like to express my sincere gratitude to my parents for allowing me a Scripps education.
Without you two, none of this would be possible for me.
3
America’s College Promise: An Economic Evaluation of President Obama’s Free Community
College Plan
Table of Contents
1. Introduction................................................................................................................................................1
2. Research Methods...................................................................................................................................2
3. Literature Review....................................................................................................................................3
4. Policy Background................................................................................................................................15
5. Theoretical Assessment....................................................................................................................20
6. Analogous Program: Universal Secondary Education.....................................................28
7. Analogous Program: Georgia HOPE............................................................................................33
8. Policy Evaluation and Recommendations .............................................................................38
9. Conclusion ................................................................................................................................................41
10. Works Cited..............................................................................................................................................42
4
Introduction
In the United States higher education is one of the primary tools for social mobility as
evidenced by the economic and social benefits of a college degree. According to the National
Center for Education Statistics (NCES) the average annual salary for a college graduate is
$51,206 compared to $27,915 for a high school graduate and $18,734 for a high school drop out
(National Center for Education Statistics, 2014). A college graduate will earn on average $1
million more over a lifetime than someone with only a high school diploma. In addition to higher
wages, college provides intangible assets such as cultural capital, a professional network, and an
increased sense of self-efficacy for its graduates. On a macroeconomic scale, the education gap
drives billions of lost GDP each year, on par with the effects of the last economic recession
(McKinsey & Company, 2009). Thus, resources gained from higher education attainment
influence the wealth accumulation of successive generations as well as the overall economic
welfare of the nation.
To increase education attainment for all sectors of the population, the Obama
administration recently unveiled a 10-year plan, entitled “America’s College Promise” to make
community college free for all students with families earning less than $200,000. The plan aims
to increase student access and bridge the gaps in higher education. However, as with any
government intervention plan, there are questions about its feasibility and impact. Namely, will
the policy increase enrollment for disadvantaged students not already served by community
colleges? Is the community college sector the correct channel to direct national resources to
increase education attainment? Will the policy increase the quality of a community college
education? Through an economic analysis of America’s College Promise and the costs and
returns to education, I hope to address and evaluate these concerns in my thesis.
Research Methods
My thesis will consist of a literature review of existing scholarly articles regarding higher
education access in America, the effects of human capital attainment on personal and national
economic wellbeing, and the role of community colleges in the U.S. education system. The
literature review will contextualize the need for the policy and the current conditions that it will
operate in if passed. Then, I will use economic theory to predict the outcomes of America’s
College Promise. In this section I will use a demand side subsidy model to predict changes in the
equilibrium quantity and price of a community college education. Next, I will use two analogous
empirical examples, the institutionalization of universal secondary education and Georgia’s
Helping Outstanding Pupils Educationally (HOPE) to examine how programs like America’s
College Promise hold up to theoretical predictions. The impact of universal secondary education
and Georgia’s HOPE program have been extensively studied by economists. Thus, I will draw
from this wealth of literature to construct a coherent analysis of how the policies to make
conclusions regarding America’s College Promise. Lastly, I will conclude with an evaluation of
the policy by addressing the efficacy of each component of the policy based on my theoretical
assessment and analysis of the analogous policies.
2
Literature Review
This thesis deals primarily with the larger picture of human capital attainment through
education in the United States and specifically with government interventions to provide
opportunities for such attainment. The success of these policies affects both the individual well
being of citizens and America’s economic position on the world stage. As I am examining the
efficacy of America’s College Promise there are several key areas of related literature that will
inform my research. I want to address the following topics in my literature review to
contextualize my paper: the state of the higher education in the United States, the impact of
human capital attainment in economic growth, the current gaps in education between different
socioeconomic groups, and the role of the community college system in the U.S. education
system.
Higher Education in the United States: A Look at Enrollment and Cost Trends
The higher education landscape in the United States can be categorized into three main
sectors, highly selective private colleges, state universities, and community colleges. For-profit
institutions are also on the rise, but they are not subject to government aid so I will exclude them
from this section of the literature review. A salient trend in all three sectors is increasing tuition
prices, one of the main reasons that prompted the proposal of America’s College Promise as the
policy specifically aims to decrease the cost of attending community college. For highly selective
private colleges, tuition increases generally arise from administrative costs to increase student
support services, capital expenditure for new technology, and academic programming as many
prestige rankings are based on spending per student (Ehrenberg, 194). Because these colleges
enroll a very limited percent of the general population, the large majority from affluent families
3
who can pay the sticker price for their education, tuition increases in this sector will only
minimally affect education attainment on a nationwide scale. In addition, they enroll a limited
number of federal Pell grant recipients with lower to middle income students financing their
education through college-funded scholarships. Moreover, the number of low-income students
that are competitive for admission at these colleges is small (Bok, 100). As a result, despite the
disproportionate media attention on selective private colleges, they cost very little taxpayer
money and enroll a negligible percent of the population. Therefore, if the US is to achieve the
goal of regaining their lead in educational attainment by increasing college enrollment at 3.5 to
4% per year, the additional college graduates must necessarily come from students who are not
already enrolled in colleges from low to moderate-income families (Bok, 98).
These students are overwhelmingly enrolled in public universities and community
colleges. For public universities, the 20% decrease in state funding between 1987 and 2011 has
resulted in a marked shift of their student body compositions. State universities are enrolling
higher income students from out of state and international students who can afford to pay full
tuition. In fact, merit scholarships to attract these students rose three times as fast as need based
financial aid between 1991 and 2008 (Bok, 100). As more would-be state school attendees are hit
by rapid tuition increases in state universities, the third sector, community colleges, are seeing an
influx in enrollment. The percentage of community college students from the lowest income
quartile rose from 21% to 28% while the students from the highest income quartile dropped from
24% to 16% between 1982 and 2006 (Bok, 99).
Therefore, community colleges are an important sector to examine when looking at
increasing educational attainment in the United States. From a funding perspective they spend
dramatically less than the other two sectors to educate a student per year. Community colleges
4
spend $9,000 per student yearly compared to $14,000 from a public university, and $33,000 for a
selective private university. They also have more open admissions policies which means that
they accessible to a larger share of the population. Just as public universities’ tight budgets have
increased tuition for its students, community colleges are also disadvantaged from states’ needs
to the balance the budget. While President Obama has increased the amount of Pell grants to help
students finance their education, this has actually decreased the amount of net financial aid
available to students as states give less funding because of the additional federal aid (Bok, 103).
Community colleges, while the cheapest option and highest enroller of low-income students,
have not fielded the best results. Currently, only 36% of students entering community colleges
graduate with an associates degree or graduate from a 4 year university within 6 years (Bok,
103). If community college improved their graduation rates, they would be adding a significant
chunk to the U.S. educational attainment total.
Inequality in the U.S. Education System
Of course, the challenge of educational attainment starts long before students reach
higher education. The literature on secondary education in the United States suggests that
eligible college students are dropping out in the education pipeline before they are reaching
college age. For example, studies by Orfield & Lee (2005) and Kaplin (2009) underscore the
detrimental effects of concentrated poverty and race in quality of education for K-12 students.
Orfield & Lee argue that schools have become re-segregated since the landmark Brown vs.
Education Case. Because socioeconomic status is so deeply linked with race in this country, a resegregation of schools would mean increased variability in quality of schooling between White
students and their Black and Latino counterparts. Their study of the Boston metro shows that
5
97% of the schools in the area with less than 10% white enrollment faced concentrated poverty
while only 1% of schools with less than 10% minority enrollment faced the same challenges.
More concerning is the fact that 50% of Latino and African American students are dropping out
of high school (Orfield & Lee, 6). Even more than the race gap, the income gap affects academic
success for high school students. In Orfield & Lee’s study 18.4% less of the students from lowincome districts graduated from high school than their wealthier counterparts. Furthermore, a
study by the Rathburn, Wes, and Germino (2004) for the National Center for Education Statistics
suggests that the education gap starts even before kindergarten, with some students possessing
certain skills acquired even before they enter school (Rathbun et.al, 12). Those who possess
skills for success in school and those who do not are often delineated by race.
Kaplin (2009) cites findings from a recent report by the Education Trust regarding the
number of low-income high school students who choose to enroll in a four-year university. The
report finds that low-income students are far less likely to attain a college degree. For example,
only about 50% of all college qualified students overall matriculate into a four-year college while
80% of students of qualified students from a wealthier background matriculated. Similarly, more
than 20% of the nation’s highest achievers from low-income families don’t make it to college
while the same is true for only 3% of their wealthier counterparts (Kaplin, 23). When all is
considered, there is a startling difference between the number of low-income students that obtain
bachelor’s degrees and their wealthier counterparts. 75% of students from the top income
quartile will earn a bachelors degree by age 24 while only 9% of students from low-income
families will do so by the same age. Thus, the existing literature shows that income level
differentially affects higher education attainment more than other social factors. In addition, the
6
link between race and income level means that students of colors, especially African Americans
and Latinos, are having the hardest time in obtaining a Bachelors degree.
Currently, colleges and universities are legally mandated to report race and ethnic
composition of its students, but not the socioeconomic composition. Therefore, it’s difficult to
quantitatively gauge the diversity of economic backgrounds at elite institutions. However, many
studies have used Pell Grants as a proxy for disadvantaged students. Data from the National
Postsecondary Student Aid study shows that 90% of all Pell Grant dependent students come from
families with incomes below $41,000 and 75% of all Pell recipients come from families with
incomes below $32,000. In a 2000 study by Donald Heller of the most competitive higher
education institutions, the percentage of Pell grant recipients ranged from a low of 0% to a high
of 18.4%. This means that the overwhelming majority of college students at elite institutions do
not come from low-income backgrounds.
Based on the available literature it seems that there are inefficiencies in the system for
education attainment in the United States that prompt a need for federal policy. The low
percentage of Pell Grant recipients at elite private universities coupled with the low academic
achievement for Black and Latino youth in secondary education across regions suggests a
broader trend of cyclical economic inequality that encapsulates all levels of education in the
United States including the post-secondary level.
Community Colleges in the United States
Like many other educational institutions, community colleges are governed at the state
level. They developed in the 1960s with the primary purpose of helping students gain skills that
were important, but did not necessarily need a bachelor’s degree, such as police officers, EMTs,
7
and accounting clerks (Rockefeller Institute of Government, 2). States also use community
colleges as the main channel of remedial education for all grade levels. In fact, the number of
Associates degree holders grew twice as fast as Bachelor’s degree holders between 1970 and
2005, making a strong empirical case for the wide utilization and necessity of community
colleges (Mullin and Phillipe, 9). An Associates degree, which is typically a two-year program,
allows students to earn academic credit to eventually transfer to a four-year university to finish
their Bachelor’s degree. In fact, according to a report by the National Student Clearinghouse
Research Center 45% of the students that obtained a Bachelor’s degree in 2011 had previously
enrolled in a two-year institution (National Student Clearinghouse Research Center, 2012). The
private and public returns to just an Associates degree without completion of a Bachelor’s is also
substantial. For holders of Associate degrees, weekly income increases by 7% and
unemployment decreases by 2.1% compared to Certificate holders. They also pay 8.5% more
taxes than the previous education level (Mullin, Phillipe, 9).
Students also stand to benefit from earning a Certificate, which is a specialized training
program with the goal of preparing students for employment in a specific sector rather than more
schooling. The rise in median weekly income from earning a Certificate, measured by the results
from the “some college” category in the 2010 US Census survey, was 13% compared to a person
with only a high school diploma (Mullin and Phillipe, 10). In addition, Certificate holders also
saw a 1.7% decrease in unemployment and an 18% increase in taxes paid. Thus there is a strong
empirical case that community colleges serve as a valuable partner to four-year universities and
employers in educating a student. Based on the increased taxes paid by successive levels of
education attainment community colleges also serve as a valuable tool for increasing the
government revenue and national economic wellbeing.
8
While the data points to a high aggregate utilization rate for community colleges,
enrollment varies quite dramatically between states. For example, California and Wyoming both
have a high of 45% enrollment while Indiana only has 12% enrollment. Tuition also varies
greatly between the cheapest and most expensive states; California has an average tuition of
$674 per year in contrast to New Hampshire’s $5,614 (Rockefeller Institute of Government, 9).
This relatively large variance in tuition and enrollment suggests that there is room for
government policy to equalize the community college system across states. Not surprisingly,
California, the state with the lowest tuition has a much higher enrollment than states like New
Hampshire and Vermont, who have the highest tuition. It is also important to note that in many
states with strong community college systems such as California and Wyoming, there is a history
of accountability and commitment to send students onto four-year institutions so enrollment
figures may reflect their quality as well as relative affordability (Erisman and Gao, 12).
However, even with California removed, for the 10 nest largest states, affordability, measured by
community college tuition as a percentage of the state’s median salary, and enrollment had a
relatively strong correlation of 0.65 (Rockefeller Institute of Government, 8). Although tuition is
an important determinant of enrollment in the more extreme cases and larger states, it doesn’t
seem to be the most prominent factor across all states. Researchers found that affordability and
enrollment had only a 0.35 correlation when the variables were regressed for all states
(Rockefeller Institute of Government, 9).
Thus, literature affirms that tuition plays a limited but not unsubstantial role in
determining student enrollment as evidenced by the correlations between tuition and enrollment.
The examined differences allow room for government policy to standardize enrollment rates
across the nation, but also present challenges in the policy making process. A policy like
9
America’s College Promise would have to address the varied effects of tuition on enrollment
across all states.
Human Capital Attainment Effects on Personal and National Economic Wellbeing
In his 1961 seminal paper on human capital investment, economist Theodore Schultz
underlines the previously overlooked importance of human capital for economic growth under a
capitalist system. Although many economists at the time were resistant to studying human capital
over the moral concerns of quantifying human value, Schultz found that much of the large gains
in national income could not be explained with just increases in physical capital. His paper
echoes Adam Smith in an inclusive definition of capital that encompasses “all of the acquired
and useful abilities of all of the inhabitants of a country as a part of capital” (Schultz, 3). In the
same vein, he commented that “laborers have become capitalists not from a diffusion of the
ownership of corporation stocks, as folklore would have it, but from the acquisition of
knowledge and skill that have economic value” (Schultz, 3). On a macroeconomic scale,
economists routinely over-estimated the negative impact of wartime losses to a country’s
economic growth. Having been commissioned by the US government to participate in these
studies, Schultz hypothesized that human capital was the missing component. By considering
discrepancies in economic theory and empirical phenomena Schultz argued that capital in our
economy represents more than reproducible capital such as money and equipment, but includes
human beings’ ability and skill.
Schultz’ study notes multiple real world phenomenon in which education and income are
correlated after controlling for other factors. He notes that workers in the South earn on average
less that workers in the North and West because they are also on average less educated. Younger
10
men entering the workforce have a competitive advantage over their fathers’ generation because
they had on average twelve years of education while the previous generation had six (Schultz, 4).
Shultz challenges the prevailing theory that states amassing a greater amount of reproducible
capital in relation to its land and labor would use their capital more because of its large supply.
However, empirical data at the time refuted the theory showing that capital usage actually
declined as incomes increased. The discrepancy between the theory and empirical results
implicated the limited scope of only including “reproducible capital” in the theoretical model. A
theory that incorporates human capital could better explain the pattern of capital expenditure in
relation to changes to income. That is, nations with higher incomes may be reducing capital
investments in factories, but increasing their investments in education. Thus, factoring in
investments in human capital could explain some of the discrepancy between theory and capital.
Schultz estimated that the stock of education in the labor force rose about 8.5 times between 190
and 1956 while the stock of reproducible capital only rose about 4.5 times. Schultz used these
figures to draw the conclusion that the relatively rapid gain in human capital stock explains about
36% to 70% of the rise in income to labor. He concluded that the decline in the income capital
ratio was a signal that “human capital investment has been increasing relatively not only to
conventional capital but also to income” (Schultz, 8).
Schultz early conclusions about the important effects of human capital investment led to
the study of human capital as a branch of Economics. In a 1999 survey paper, Blundell et al
examines the returns of education for the individual and the economy. Similarly to Schultz he
defined human capital to be an investment decision in which individuals give up income for
some expected future return. For the UK and other developed western nations, the current
empirical research details an average gross rate of return for an additional year of education at
11
five to ten percent (Blundell et al, 4). In addition to the monetary returns on education,
researchers also found that workers with higher levels of education were also more likely to
participate in workplace training and other educational opportunities after their formal schooling.
Further on-the-job training was found to be highly portable in that workers benefited from the
training after leaving their current jobs (Blundell et al, 5). However, researchers noted that the
returns on training, especially vocational training, flattened over time leading them to conclude
that there are benefits to renewing training throughout an individuals life time. Despite this
caveat, the positive rate of return on education and the self-sustaining component to human
capital accumulation that suggests that investment in human capital is a valid tool for individual
economic growth.
Individual investment in human capital has numerous positive spillover effects for the
economy as a whole. Education produces a more employed population, which decreases crime
rates and social welfare programs such an unemployment aid, in turn reducing taxpayers’
burden. It also improves the democratic process, as citizens are able to make more informed
decisions. The literature presents the Growth Accounting Model to justify the importance of
education in Economic development. The model states that the relatively high rates of Economic
growth cannot be accounted for with the rates of growth seen in the quantity of labor and capital,
the traditional inputs in a production function. The “residual” remains unexplained even when
reclassified as “technical change” or “efficiency.” Thus, Economists conclude that the quality of
human capital, more than the just the quantity of labor, plays a large role in Economic growth. In
fact, empirical evidence shows that the increased rates of education in the labor force over the
past fifty years accounts for about one-third of the overall growth in productivity in the United
States (Griliches, 4). Under the Growth Accounting Model there are two main streams of
12
thought. One group of economists agree that the level of output depends on the level of human
capital in the labor force, implying that countries who accumulate higher rates of human capital
over time will also have higher rates of output. In this case, human capital attainment is directly
linked with Economic development. Another strain of thought states that human capital is the
primary source of innovation and increases an individual’s ability for technological innovation
and to adapt to change. This school of thought claims that education levels indirectly impact
output by making technological and organizational changes possible (Blundell et al, 16).
13
America’s College Promise
America’s College Promise is President Obama’s proposal to make two years of
community college education free for qualified Americans. The plan was announced at the
January 2015 State of the Union Address and is currently being proposed as part of the Fiscal
Year 2016 Federal Budget. As the writing of this paper, Congress has not yet voted on that
budget so the implementation of the plan remains to be seen. If implemented, a successful
outcome would include the following: increased enrollment in Associate’s Degree granting
institutions by disadvantaged students that would not have been able to attend sans subsidy,
higher quality community colleges as measured by academic courses that fully transfer to a fouryear university or vocational programs that grant students’ certificates in high-demand fields,
increased student responsibility as evidenced by a GPA higher than 2.5 (The White House,
Office of the Press Secretary).
President Obama’s community college plan follows a number of historic, large-scale
government subsidy plans. Most notably, it is being likened by the Obama Administration to the
movement for free public secondary education in the pre-Civil war period, when a combination
of federal and state level funding led to free high school education in all states by 1900 (Goldin
& Katz, 145). The gains in education attainment from free and subsequent mandatory universal
secondary education have been heavily researched by economists, especially in Massachusetts
and New York where district-level subsidies for schooling since the early 1800’s resulted in over
70% school enrollment rate for children aged 5-19. America’s College Promise aims to emulate
these results and expand on the current 42% college enrollment rate for the nation’s 18-24 year
old population (National Center for Education Statistics, 2014).
14
The plan will further impact non-traditional students, who are older, working, need
remedial classes, or can only attend part-time who make up substantial percentage of community
college students (The White House, Office of the Press Secretary). They serve 3 million full-time
students and 4 million part-time students, giving enrollees the flexibility to engage in education
on their own schedules (The American Association of Community Colleges, 2014). America’s
community college system serves the most diverse population of students compared to any other
sector of higher education. As testament to their accessibility, enrollment in community colleges
increased 16.9% during the Great Recession in 2007 and 2008 (Boggs, 2). Of the African
American students that are enrolled in an institution of post-secondary education 45% attend a
community college. That number is 53% for Latino/a students, 52% for Native American
students and 45% for Asian/Pacific Islander students. In addition to their racial diversity,
community colleges serve 47% of first-generation students that are enrolled in post-secondary
education (National Commission on Community Colleges). Currently, community colleges are
50% White, 14% Black, and 21% Latino/a (American Association of Community Colleges,
2014). Blacks and Latinos/as are represented on par with their share of the aggregate U.S.
population, thus demonstrating the established role that community colleges already play for
students that are traditionally underrepresented in other sectors of higher education. Therefore, a
policy targeting an increase in community college enrollment, graduation, and quality would
indeed reach an economically disadvantaged demographic that needs human capital investment
from the government.
The policy builds on America’s relatively expansive community college system started as
a movement in the early 1900’s with the core idea of democratizing education. The first
community college, Joliet Junior College, formed in 1901 as a joint effort between William
15
Harper, the president of the University of Chicago and J. Stanley Brown, the principal of Joliet
High School, in order to expand education opportunities for local students. Community colleges
were institutionalized when the Truman Commission changed the paradigm of post-secondary
education from “merely being an instrument for producing an intellectual elite” to “the means by
which every citizen, youth, and adult is enabled and encouraged to pursue higher learning”
(President’s Commission, 1947). Historically, community colleges changed the idea that students
had to “go away” for college and provided an accessible place of higher learning right in their
hometowns. In fact, today 90% of the U.S. population lives a short commute from at least one
community college. The regional nature of community colleges and the proximity of their
students position them well to serve the local community. For example, Napa Valley College has
an established viticulture program while community colleges on the gulf coast have developed
petro-chemical technician programs (Boggs, 2).
With roots in the 20th century, America’s College Promise is based on a similar plan from
Tennessee called the Tennessee Promise that offers a subsidy for a partial sum of community
college tuition. Expanding of the Tennessee Promise, Obama’s plan seeks to inject $1.36 billion
to completely subsidize community college tuition to those qualified (Department of Education
FY 16 Budget Request, S-149). The plan could potentially help up to 9 million community
college students save an average of $3,800 in tuition costs annually. Any student with an
adjusted gross income of below $200,000 would be eligible for the tuition waiver. The $1.36
billion will provide about three quarters of the funding needed while individual states will
provide the remaining one fourth. The fiscal partnership will be based on state accountability to
criteria that include student enrollment rates, program completion, and transfer rates to four-year
universities. Grant money left over from providing tuition subsidies will be invested in
16
increasing community college quality (i.e.: increasing program completion, graduation rates, and
instruction quality), increasing affordability of four-year public universities, improving college
readiness, and outreach and early intervention programs. Currently, the Administration has set a
timeline of 8 years to implement the plan in all states (Department of Education FY 16 Budget
Request, S-150).
This policy comes at a time of declining community college enrollment and poor
program completion rates. Between Fall 2012 and Fall 2013 there was a 3% decline nationwide
in community college enrollment, with a more marked decrease for students over 24 years old.
The National Student Clearinghouse (NSC) reports that 40% of community college students
complete their program within six years (Juszkiewicz, 3). When benchmarked against a 59% sixyear graduation rate for full-time students at an accredited four-year university, the completion
rate for community colleges falls short (National Center for Education Statistics). According to
the American Association of Community Colleges, currently 58% of those attending receive
some type of aid with state and federal grants, aid, and loans making up 69% of aid received.
Community colleges serve a student demographic with 33% Pell Grant recipient students and
16% of students on Federal Work Study. It is worthwhile to note that Pell Grants are only a
proxy for low-income students rather than a perfect metric because they capture students at the
very bottom of the income bracket (below $20,000 annually). The exact economic diversity of
community colleges is uncertain. However, with an average $3,347 annual tuition for public
community colleges, it is almost three times cheaper than attending a public four-year institution
($9,139). Therefore, it is not far-fetched to make the leap that community colleges are much
more likely to enroll on average a lower income population. At least on the surface, Obama’s
17
American Promise targets a population that is largely disadvantaged in the education attainment
game.
Much like the movement for free universal secondary education that came before it,
Obama’s plan for free public community college education aims to increase the human capital of
America’s labor force by increasing enrollment, completion, and transfer rates in community
colleges. It has been estimated that by 2020, 35% of jobs will require a bachelor’s degree and
30% will require some college compared to the current 28% of jobs that require some kind of
post-secondary education for entry (Bureau of Labor Statistics). These statistics suggest that the
community college plan comes at a time when Americans need government investment in postsecondary education to help them enroll and finish degree-granting programs.
18
Theoretical Assessment
Supply Side: Policy effects on Supplier Quality
Broadly, the actors the market for higher education are the community colleges and
universities who are non-profit suppliers of education and consumers, the students (and to some
extent their parents). However, there are several economic distinctions in the market for higher
education that makes it unique from regular markets of consumer goods. These economic
distinctions can be used to understand some of the underlying assumptions of America’s College
Promise; especially in its role to incentivize supply side quality increases in community college
educations.
One important difference between suppliers of higher education and suppliers of other
consumer goods is the non-profit nature of educational institutions. Economically and legally,
non-profit does not mean that colleges’ revenues does not exceed costs, but rather that they face
a “non-distribution” constraint. That is, unlike corporations, non-profits do not distribute their
revenues to outside shareholders or beneficiaries. They essentially own themselves (Winston,
17). Thus, economists argue that they do not fully follow the profit-maximizing behavior of a
for-profit firm. They must ensure that in the long-term revenues are larger than profits because
they are budget constrained, not because the end-goal is to achieve the largest profits to distribute
to shareholders. Institutions of higher education more close resemble “prestige maximizing”
entities because their goal is the “pursuit of educational excellence” rather than the largest net
income (Winston, 15).
A non-profit’s adherence to ideological goals rather than profit goals is economically
significant in the market for higher education because it reduces the risk to consumers of an
opportunistic supplier. Information is relatively asymmetric in the market for higher education in
19
that suppliers will always have more knowledge of the quality of their product than the
consumer, especially in the case of first-generation or disadvantaged students. Even in the case
of students from wealthier families with parents who have gone to college, the returns on an
investment in human capital cannot be fully observed until the individual goes on into the job
market years later. And even then it is different from investing in other things such as the stock
market because returns cannot be measured as capital gains or dividends. Economist Gordon
Winston (1999) describes the nature of transactions in the higher education market, “education is
typically a one-shot investment expenditure, a unique rather than a repetitive purchase, more like
buying a cancer cure than groceries” (Winston, 15).
Therefore, the market for higher education has come to resemble what economists dub a
“trust market” in which the suppliers’ utility is more than just a function of profit. This aspect of
the non-profit market is key to minimizing the chances that suppliers will take advantage of
buyers who are not fully informed (Winston, 16). Recall from the Policy section that America’s
College Promise makes demands on community colleges to increase quality standards of
classroom instruction and adopt new programs that help students earn their degrees faster, in
exchange for the federal subsidy. Theoretically, for a profit-maximizing supplier of a typical
consumer good, the incentive would only work insofar that the amount of the government
subsidy is equal to or exceeds the increased costs that the firm would incur to increase quality.
However, from the above economic assessment of non-profit firm behavior, the argument can be
made that incentives from America’s College Promise will yield quality improvements beyond
their dollar amount because community colleges derive utility from helping their students
succeed.
20
Demand Side: Education Subsidy Effects on Enrollment
The demand side results of Obama’s American College Promise can be modeled with
microeconomic theory. The plan will offer a subsidy to colleges to pay for students’ tuition so
primarily takes the form of a demand subsidy although it is technically given to the supplier.
Because the plan is a grant that will be replacing tuition that the colleges already receive as part
of their revenue stream, it will not play a role in decreasing costs on the supply side. Under the
assumptions of a perfectly competitive market, the downward sloping demand curve will meet
the upward sloping supply curve at the equilibrium price and quantity. The plan aims to shift the
demand curve out to increase the equilibrium quantity. Specifically, the policy aims to shift out
the demand curve for groups that are not already enrolled, primarily mid to lower-income
students. Assuming, that demand for a community college education is price elastic, the
decreased net price for consumers due to subsidy, will increase the equilibrium of quantity
demanded. In the ideal case if the demand for a community college education has price elasticity
greater than one, a one percent change in price will result in an even greater percentage change in
quantity demanded. Thus, America’s College Promise has the potential to positively impact
demand for a community college education.
The policy’s affect on quantity demanded will also depend on the shape of the supply
curve. If community colleges are not at capacity and the supply curve is relatively elastic, there
will be room to accommodate a quantity demanded increase. Conversely, if the supply curve is
perfectly inelastic, a change in price will have no effect on the quantity demanded. Empirically,
the capacity of community colleges varies across states so it is difficult to sum up the shape of
the aggregate supply curve. In states such as California, budget cuts and the popularity of
community colleges as a gateway into four-year universities have resulted in decreased supply
21
capacities in recent years. In the Fall of 2010, 140,00 students were unable to register for classes
due to budget cuts following the Great Recession (California Community Colleges, 2010). The
supply curve in California’s case would be relatively inelastic and a policy aimed at shifting the
demand curve out would have no effect on equilibrium quantity. However, in states such as
Indiana, where enrollment rate for community colleges is 14% of the college age population,
there is room for a policy like America’s College Promise to make an impact on quantity
demanded. Thus these variations are worth examining to evaluate the overall potential benefits of
the policy.
A 1999 study by Donald Heller on the effect of education subsidies by state takes into
account these persisting state differences and sheds light on the disaggregated effect of education
subsidies on enrollment. In his study of the effects of tuition and state financial aid on public
college enrollment, Heller uses a fixed effects model to estimate the enrollment impact of aid by
state. He uses for public college enrollment including community colleges rom the Integrated
Postsecondary Education Data System (IPEDS) gathered by the National Center for Education
Statistics (1998). In his model the dependent variable is enrollment rate in a certain state
measured by the number of students enrollment in post-secondary education out of all 18 to 24
year population at a certain time (t). His independent variables are tuition prices in each state at
time (t) and state need-based grant expenditures per 18 to 24 year old population in each state at
a given time (t).
He controls for confounding variables resulting from differences in conditions between
states by adding unemployment rate, state-fixed effects, year effects, and a parameter for the
strength of the influence of the previous period. The state-fixed effects and year effects control
for differences in regions by allowing different intercepts for each state away from the mean
22
intercept (i.e.: the Northeast has a longer tradition and greater supply of private colleges than the
rest of the United States so they are likely to have less public college attendance, but not
necessarily because of state financial aid policies).
For his model, changes in enrollment rates are expressed in percentage points while
tuition is expressed in thousands of dollars. His findings for the effects of state grants and
increases in college tuition for all races are significant at the .05 p-level (Heller, Table 4). In his
comprehensive study of all public colleges in the United States as represented by IPEDS data, he
finds that for all races a $1,000 increase in community college prices is correlated with a 2.08%
drop in enrollment rates. This comprehensive model suggests that there is room for a grant based
policy like America’s College Promise, but that policy-makers would have to take into account
the differential impacts on states with varying capacities to absorb the outward demand shift.
Disaggregated Benefits of a Community College Education
As established in the literature review section, human capital investment has marked
private and social benefits. More educated workers have lower rates of unemployment which
translates to cost savings from paying welfare and unemployment compensation for the
government. Cost of production for firms could also potentially decrease because of increased
productivity from a higher skilled labor force. In addition to the cost savings, education helps
improve the quality of the political process (McConnell et. al, 100). A more educated population
may make better-informed choices that benefit society at large. Lastly, the benefits of education
are transmitted to the next generation. Well-educated parents may be more likely to provide a
healthy home environment for their children and encourage the next generation to also pursue an
education (McConnell et. al, 100).
23
The government stands to gain a wider tax base for the government, which would make
the initial investment a worthy
orthy one. Research shows that holders of a certificate pay 13% more
taxes than holders of only a high school diploma. Holders of an Associate’s degree stand to pay
7% more taxes than Certificate earners while holders of a Bachelors degree pay 47% more taxes
tax
than the education level below. The chart below details the fiscal benefits of investing in higher
education (Mullin & Phillippe, 8).
For individuals, a community college education includes many sub
sub-components
components that
America’s College Promise lumps ttogether
ogether under the umbrella goal of “more education
attainment.” Therefore, to sufficiently evaluate the potential benefits of the policy, it is worth
examining the disaggregated returns to earning a vocational Associate’s Degree, an
a academic
Associate’s Degree,
gree, a Certificate, or going on to earn a four-year
year Bachelor’s degree, all of which
are categories of education offered by community colleges. In addition to the returns of earning a
degree, it is also worth examining the costs of the failure to complete one of the above programs,
a significant risk that the policy’s focus on enrollment does not sufficiently address.
In a comprehensive study of post
post-secondary
secondary vocational education and the subsub
baccalaureate labor market, Berkeley economist W. Norton Grubb (1992) models the returns to
the degrees of educational attainment under the various degrees of education attainment under
“some college” census category. His study uses data from the fifth follow
follow-up
up of the National
24
Longitudinal Study of the Class of 1972 (NLSC-72), one of the most comprehensive archives
ever compiled about a single generation of Americans (National Center for Education Statistics).
Grubb uses data from the fifth follow-up, when the students are 32 years old rather than data
directly after post-secondary graduation to control for the relative instability of youth labor
markets and to more accurately model the long-term wage effects of the varying degrees of
educational attainment (Grubb, 226). In this way, his study also accounts for the lagged indirect
benefits of degree attainment such as on-the-job training, which is only available after a student
graduates and is able to secure a job.
Grubb estimates two linear form models with hourly wage rate and total wages earned
from salaries and self-employment income as dependent variables. He uses dummy variables to
measure which category of “some college” they fall under as independent variables. Unlike
previous studies, the model also includes the binary variable “complete or incomplete” to
measure predict the effect of failure to complete a program on wages. The study also controls for
various confounding variables such as ability, measured by high school GPA and scores on
aptitude tests, as well as parental income level, in various iterations of the model.
Grubb further disaggregates the results by gender and finds that for both men and women
Associates degree increases hourly wages and total earnings, but by significantly less than a
Bachelor’s degree. Unexpectedly, he finds that for men, a vocational certificate does not have a
statistically significant impact on either hourly wage or total earning. This seems
counterintuitive, but is consistent with the limitations of such a specific education. Vocational
certificate earners must find jobs in the sector that they are specifically trained in, which reduces
the average increase in wage across sectors because of graduates who face a limited amount of
job sector opportunities. Most importantly, the Grubb study finds that for non-completers, “a
25
heterogeneous group of those who enrolled in post-secondary education but did not complete and
credentials,” did not earn more than high school graduates (Grubb, 239). Thus, the enrollmentfocused policy faces the risk of lower returns for students than predicted because of the net zero
return for non-completers. These findings suggest that America’s College Promise would better
serve its target population by focusing on quality over enrollment. Based on the relatively high
returns to a four-year degree and the previously established “prestige maximizing” behavior of
education institutions, I would argue that the policy would contribute most positively by
allocating resources to increase four-year university transfer rates for disadvantaged students
already enrolled.
26
Analogous Program: Universal Secondary Education
While the Economic theory predicts that Obama’s America’s Promise policy will
increase the equilibrium quantity of a community college education for disadvantaged
populations, the empirical results may be different from what theory predicts. As outlined in the
previous section, there are many factors at play that cannot be encompassed in an economic
model. To provide a prediction more grounded in reality I will empirically examine two
analogous educational subsidy programs. These programs have similar components to the
Obama program and will shed light on how government subsidies to education play out in the
real world.
The first empirical case I will examine is the movement for free universal high school
education at the beginning of the 20th century. The results of this movement could shed light on
the possible success or failure of America’s Promise because of the plans’ similar scope and
nature. In fact, America’s promise has been marketed as an extension of America’s universal
high school education, designed to emulate the results of, “a movement that made high school
widely available [and] helped lead to rapid growth in the education and skills training of
Americans” (The White House Office of the Press Secretary).
Similar to America’s Promise, the movement for universal high school education started
at the state level with the state government in Massachusetts leading the charge. The United
States recognized early on that their wealth as a nation would depend on human capital rather
than physical capital. Thus there was a clear shift between the heavy investment in physical
capital during the Industrial Revolution and the early 1900’s where public policy targeted
increasing the educational options for children regardless of station (Goldin & Katz, 11).
America’s economic leadership during the 20th century speaks to the benefits of the shift to large
27
investments in human capital. For example, by the 20th century the United States had the world’s
most educated population and started its reign as the world’s largest economy (The White
House). Moreover, public education institutions in the US rejected the idea of testing for ability
or selection of the best and brightest. Policymakers believed that such a process would indirectly
privilege children of education parents. In fact, the US education system was criticized
throughout Europe for its allocation of public resources to everyone rather than just the “most
deserving” (Goldin & Katz, 12). The clear rejection of ability based “meritocracy” as a means
test for resource allocation is dissimilar to both Georgia HOPE plan, a merit-based scholarship
discussed in the next section, and Obama’s new plan. Unlike the GPA requirements of the two
plans, universal high school education is not merit-based and this distinction will be important to
note when comparing the programs.
Economists Goldin and Katz examined the effects of universal education to successive
generations of native-born Americans to determine the success of the movement. They took data
from the educational attainment of labor force participants at age 35, when the large majority of
people had completed their formal schooling. From 1876 to 1951 native-born Americans were
able to gain a total of 6.2 years in education. For example, someone born in 1951 was on average
6.2 years more educated that their 1876 counterpart (Goldin & Katz, 23). This means that
Americans’ education attainment increased at a rate of 0.82 years per decade. By the 1950’s, the
United States was able to enroll more than 70% of its youth in secondary schools while Europe
lagged behind at below 20 percent for youth enrollment in its secondary schools.
Overall, in the one hundred year period between 1895 and 1975, education attainment for
native-born Americans increased 5.27 years. Goldin and Katz found increased time in high
school was responsible for 50% of the gains overall and 60% of the gains between 1895 and
28
1910. Similar to the Georgia Hope plan, educational gains for the African American population
were far greater than for the White population. At the start of the century White students spent
nearly twice as long as their Black counterparts in schools. The initial gap may have even been
understated because of the quality of schooling varied widely between segregated schools. By
the 1970s the time spent in school between Blacks and Whites had converged to about 0.8 years
(Goldin & Katz, 26).
The researchers also looked at the differences of number of high schools across
geographical areas to understand what factors affected individual choices to enroll in school and
public choices to fund investment in education. Researchers found that at the time of the
movement for secondary education, there were more than 130,000 school districts in the United
States and state and federal funding to these school districts did not exceed 16% (Goldin and
Katz, 719). Although, community colleges follow a different financing structure (an increasing
proportion of its revenue is from the federal and state government) this is important because the
structure of secondary education in the United States at the time of the paradigm shifted strongly
resembles the local nature of community colleges today. As profiled in my literature review,
community colleges are in a unique position to offer a community based education to its
immediate geographical area. In fact that is what distinguishes it from four-year universities.
Goldin and Katz give a valuable framework for assessing the individual and public
demand for community colleges by their work on human and social capital. In their human
capital framework, an individual’s choice get a high school education is simply a function of
how much the benefits outweigh the costs. That is a student will choose to attend if / – 1)/
29
(1 + r) > (C + / 1The left hand of the question represents the returns to education, which
is a function of the high school wage premium / ), and the discount rate (r) while the right
hand side represents the costs to education, which is a function of the direct costs, (C/ ) and
opportunity cost, ( / of foregoing work to pursue an education. The simple models shows
that demand for a high school education positively correlated with the high school wage
premium and negatively correlated the costs to education and the discount rate. Their model
implies that demand for a high school education is a function of family wealth and subject to
some kind of income effect. That is, changes in quantity demanded will be affected by changes
in the family income (Goldin and Katz, 694).
Goldin and Katz’ model to predict individual choice in pursuing a high school education
can be applied to assess demand for community colleges to address the question of whether price
is a key factor for increasing low-income enrollment. Empirically, the data shows that the wage
premium for higher level of education is at an all time high (college graduates will earn on
average $1 million more over a life time), which indicates strong returns for students who can
use community colleges as a jumping off point to a four-year degree. The wage premium for an
Associates degree while less than a four-year degree is not insignificant.2 However, for lowerincome families, we can assume that the discount rate (r) is relatively high because they face
larger capital constraints. That is they face the challenge of borrowing to finance an education
and at a higher interest rate. This indicates that some of their gains from the education wage
premium would be offset by the higher discount rate. Thus, the right hand of the equation, (C +
/ , representing cost, must be sufficiently decreased by policy to satisfy the condition
Cost of high school education, = Wages earned after graduation, r = Discount rate,
= wages earned without a high school degree
2
Disaggregated wage premiums by degree completed is discussed in detail in the Grubbs (1999)
study in the theoretical assessment section
1
30
under which an individual will pursue an education. America’s College Promise tackles the
direct costs by making (C/ ) essentially 0, leaving students with only the opportunity costs of
pursuing an education. Because of the strength of the wage premium and the pronounced income
effect that affects demand for education, it is reasonable to conclude that subsidizing the cost of
attendance will attract more low-income students to community colleges.
After the initial rapid improvement in educational attainment, the rates for the last quarter
of the 20th century slowed down notably. For example, a child born in 1975 had only a 0.5-year
increase from their parents born in 1951 compared to the 2.18-year gain for the previous
generation. Although there was a notable slowdown in education gains for the last quarter of the
20th century, universal secondary education seems to have had an overwhelmingly positive effect
on educational attainment. Thus, the empirical results from universal high school education
suggests that a similar structure in Obama’s community college plan would positively affect
attainment rates for students that would not have otherwise attended college.
31
Analogous Program: Georgia HOPE Scholarships and Grants
The success of the movement for universal secondary school eventually led to a
slowdown in terms of generational gains in education. Eventually, most students that could be
enrolled in high schools were already enrolled shifting the threshold for additional beneficiaries.
Thus, my second example is a more modern comparison. The Georgia Helping Outstanding
Pupils Educationally (HOPE) serves as an empirical analogue to what America’s promise can do
for higher education, the natural next step to a high school education.
The Georgia Helping Outstanding Pupils Educationally (HOPE) program was founded in
1993 in order to help academically successful students in Georgia access a post-secondary
education (GACollege411). The background to the program’s founding is very similar to that of
America’s Promise. In 1993 Georgia, like much of the South, lagged behind the rest of the
country in terms of college enrollment for its college aged students. The plan was enacted by
governor Zell Miller to remedy Georgia’s education lag and provide an incentive for Georgia’s
talented students to remain in the state. The plan stipulates that recipients of HOPE money must
be enrolled in a college, university, or technical college in Georgia. Thus, this provides a
contained case study on the benefits of government subsidy programs, specifically one that is
merit based. In the same way that America’s College Promise aims to increase human capital
attainment nationwide, the Georgia plan aims to increase human capital quality in the state.
The program is separated into two parts, the HOPE Scholarship and the HOPE Grant.
The Scholarship primarily provides aid for students to attend four-year colleges and universities
while the Grant financially supports students to enroll in technical schools, community colleges,
and certificate programs in Georgia. The Scholarship is merit-based while the grant is not
(Cornwell & Mustard, 79). Thus, I will focus on the empirical evidence from the HOPE
32
Scholarship because of its merit-based nature and proportionally larger share of state funding.
Before the HOPE program, students in Georgia had only the option of federal need-based aid
such as Pell Grants or Stafford Loans. In contrast, the HOPE Scholarship is a merit-based award
for students that meet the following criteria: graduation from an accredited public, private, or
home school program, and a 3.0 GPA in designated HOPE core courses (Cornwell et al, 760). To
continue benefitting from the Scholarship students need to maintain a 3.0 average throughout
their post-secondary studies. This is almost exactly like American’s promise, wherein to retain
eligibility for the subsidy students must maintain a 2.5 GPA. There has been no income
restriction for the HOPE scholarship since 1995, making it comparable to America’s Promise’s
high $200,000 income restriction. Thus both programs encompass similar demographics, but it is
important to note that the higher GPA cut-off for the Georgia HOPE program may be the source
of pronounced differences in the students the programs serve as income and academic
performance are highly correlated.
The HOPE scholarship covers in-state tuition, fees, and a $150 book allowance for
students that attend a public college or university in Georgia (Chen, 10). For students who chose
to attend private universities in Georgia, the scholarship will cover $4,045, a similar amount to
what the scholarship would cover for public school students. Since its founding in 1993, the
HOPE program has provided $3 billion in tuition for more than 850,000 students. In addition to
its impact in Georgia, the plan has also influenced a wide range of other similar state plans to
increase college enrollment.
A 2006 study on the enrollment outcomes of the Georgia HOPE plan by labor economists
Cornwell et al. sheds light on the program’s benefits. Researchers used data from the National
Center for Education statistics from 1988-1997 to compare Georgia’s college enrollment after
33
the HOPE program treatment with a control groups of the 14 Southern Regional Education
Board (SREB) states and the 5 states that border Georgia where there are no programs similar to
HOPE to analyze how well the program was at sending students onto higher education. This
comparison captures the number of students that go onto higher education that would not have
done so without the HOPE treatment. Between 1993-1999 the program successfully awarded
721,246 scholarships and grants. Scholarships and grants were evenly split with 49.4%
scholarships for degree granting institutions and 50.6% for community colleges and technical
schools (Cornwell et al, 765).
The study finds that between 1993-1997, Georgia enrolled 5.9% more students than the
SREB aggregate. This means that HOPE was responsible for adding 2,889 new freshmen per
year to Georgia colleges (Cornwell et al, 763). Cornwell et al. also found that the increased
enrollment was smaller for White students than for Black students. This difference was explained
by the large presence of Historically Black Colleges and Universities (HBCU) in Georgia. In
addition to the large number of HBCU’s Georgia has the fourth largest Black population in the
United States (Cornwell et al, 783). However, the relative success for Black enrollment may still
point to the program’s success in enrolling minority students because the White population still
outnumbers Blacks in Georgia. At first glance, the research points to a largely positive outcome
for the HOPE program. However, when the results are disaggregated the researchers found that
the largest effect was on 4-year public and private schools with a 9% increase for public and a
13% enrollment increase for private schools. The estimated percentage increase for 2-year
programs is “small, negative, and statistically insignificant” (Cornwell et al, 783).
Another study on the effects of the HOPE program on minority and low-income students
expands on this issue. Data shows that for the class of 2000, 6,638 students or 33% of high
34
school students in Georgia do not meet the HOPE Scholarship GPA cutoff and are therefore not
eligible for aid to attend four-year degree granting institutions. Of those ineligible students,
44.4% are Black while 29.7% are White and 24.2% are other races (Cornwell & Mustard, 93).
These results are not surprising as multiple studies have found that family income and academic
achievement to be positively correlated (and race and income are also heavily correlated in the
U.S.). The researchers found that a one percent increase in the number of Black students in a
high school was correlated with a 0.18 percent decrease in HOPE eligible students. This negative
correlation was statistically significant at the 0.01 alpha-level. The paper found no statistically
significant effects for an increase in Latino or Native American students. As expected when
control variables were added such as quality of teachers, quality of peers, and number of families
on free or reduced lunches race was not a statistically significant indicator of HOPE eligibility.
That is to say, quality of schools and peers and family background are the most important
determinates of eligibility for the merit scholarship. America’s Promise, like Georgia HOPE,
runs the risk of excluding the very people that it is aimed at because of its merit-based nature. On
the other hand, researchers found that eligibility for the scholarship jumped from 48% to almost
65% in the six-year period between 1993 and 1999 (Cornwell & Mustard). This would suggest
that the merit component has also helped incentivize higher academic achievement, which is also
a possibility for America’s Promise.
35
Policy Evaluation and Recommendations
America’s College Promise essentially has three components that can be broken down by
the goal that each stipulation of the policy aims to achieve: increasing enrollment for
disadvantaged students, increasing community college quality, and increasing education
attainment in the United States. Together, the three pieces aim to hold students, the colleges, and
individual states accountable for community college success.
The first piece aims to increase the number of students enrolled and the program
completion rate for community colleges through government aid while holding students
accountable for their own success. Predictions from a demand-side subsidy model and Heller’s
(1999) model of the role of aid in college enrollment makes a compelling economic case for
government subsidies to help disadvantaged students finance an education. Tuition affordability,
although not the only factor, is significant in a student’s decision to pursue post-secondary
education. Goldin and Katz’ (2000) model for students’ reaction to capital constraints further
supports the role of a subsidy like America’s College Promise. Additionally, human capital gains
from investment in education and the wage benefits of an Associates degree, explored in the
literature review and theoretical assessment, make a compelling case for government
intervention at the community college level.
While the economic case for the subsidy component of America’s College Promise is
strong, I would argue that the empirical realities mandate that the policy place an even greater
focus on community college quality than simply enrollment. The number of community college
students graduating with a degree, certificate or going on to enroll in a 4-year university within 6
years is relatively low, at 40% (Juszkiewicz, 3). Grubbs (1999) study finds that for noncompleters, the wage benefit of a community college education is essentially 0. Thus, students
36
will only benefit from enrollment in community college if they go on to complete a degree. The
same study finds that they stand to benefit even more if they go on to enroll in a four-year
university. Thus, a piece holding students accountable for the quality of their own education is
crucial to the success of the policy. However, the strict 2.5 GPA, while emphasizing quality, may
limit the enrollment effects of the plan as evidenced by the analogous empirical cases of
universal high school education and Georgia HOPE.
Proponents of universal secondary schooling were adamant that their system would be
democratize education and refused entrance requirements such as IQ tests. However, there are
several “merit” factors that would have impacted successful entrance into high school in the late
19th century that are worth examining. First, a student would have had to complete middle school
(up to grade 8) for successful entrance to a high school, which would have been difficult in the
early 19th century when compared to today’s standards. Data from the National Center for
Education Statistics (NCES) shows that for the 1869- 1870 school year the average elementary
school attendance rate was 59% compared to 90% in the 1979-1980 school year. That is
elementary school students in 1870 attended on average around 59% of instruction days
compared to an average of 90% in 1980. However upon closer examination, this factor would
not have had as much of an impact on students past the 1920’s, by which all states had adopted
compulsory education laws. Thus, this merit barrier would not have figured prominently into
gains in education attainment that we see from universal secondary education and is not
analogous with the merit requirement for free community college tuition.
An indirect “merit” threshold that high school students face is the correlation of high
school quality with residents’ income (details about inequality in the U.S. education system can
be found in the Literature Review Section). That is to say, a student’s level of access to a quality
37
education is limited by the unwritten “merit” of their family’s income. This type of “merit” cutoff, more so than the previous example, is closely analogous to the 2.5 GPA cut-off stipulated by
America’s Promise. As illustrated in the Literature Review, wealthier students with more access
to educational resources are more likely to do well in school. Thus, empirical studies in the
literature review show that the GPA cut off in America’s College Promise may prove detrimental
to enrollment from low-income populations who are less likely to be academically successful.
This empirical result is further reinforced in the studies on the analogous Georgia HOPE
scholarship in the previous section. For example, a recent article by the Wall Street Journal
found that seven zip codes in Georgia, with median incomes of $100,000 above produced 10%
of all Zell Miller scholarships, a type of merit scholarship within the Georgia HOPE umbrella
that offers full tuition for its awardees, while representing only 3% of college age students
(Riley, 2014). Additionally, the same article found that students coming from families from zip
codes with a median income above $50,000 were almost twice as likely to qualify for HOPE
scholarships (Levitz and Thurm, 2012). This could prove problematic for America’s College
Promise as the policy has a $200,000 income cap, which would mean that middle class citizens
could stand to benefit more than low-income individuals. Thus, the policy may not be reaching
the sector of the population that would stand to benefit from the government subsidy the most.
Therefore, the policy must find a way to reconcile its enrollment goals while still emphasizing
the quality control piece from its merit cut off. Based on extensive empirical evidence for the
detrimental effects of strictly merit-based aid I would argue that the key to quality improvement
to ensure higher completion rates is in the next piece, incentivizing community college
responsibility for quality.
38
The second piece of America’s College Promise aims to increase community college
accountability in providing a quality education for its students. Namely, the plan stipulates that
community colleges must provide academic programs that fully transfer to four-year universities
or offer occupational training programs for in demand jobs that will secure student employment
after graduation with an Associates degree for a certificate. The college must also adopt
“promising and evidenced-based institutional reforms” to ensure student success while enrolled.
This piece is crucial in the policy’s success because it holds community colleges accountable for
helping students meet the merit requirements of their scholarships. It will also be instrumental in
controlling for the large variation in community college quality across the United States. For
example, the current transfer rate to four-year institutions for community colleges is an average
of 40% with a standard deviation of 13%. Transfer rates range from a low of 5% in Hickory,
North Carolina to 93% in West Covina, California.
Obama’s plan cites Accelerated Study in Associate Programs (ASAP) from the City
University of New York (CUNY) as a successful example of “promising and evidenced-based
institutional reforms.” The program is available to students pursuing an Associates degree from
any of the nine CUNY colleges and is designed to help at least 50% of students graduate with an
Associates degree within three years (CUNY). Currently, the program has a 48% graduation rate
within three years, three times the graduation rate of comparison urban community colleges
(CUNY). ASAP provides support for students in the program through smaller class sizes, a
cohort of peers, bus passes, textbook subsidies, and personalized career development services. If
America’s College Promise can successfully incentivize colleges to adopt support programs like
ASAP for disadvantaged students, the plan may be able to neutralize some of the drawbacks
39
from the merit cut-off by holding community colleges accountable for helping students maintain
their scholarships.
Recall from the theoretical assessment that the structure of the market for higher
education closely resembles a “trust” market. The non-profit suppliers are not exclusively driven
by profit but also by providing an excellent education to their students. This has promising
implications that incentives to community colleges many return more than the just the dollar
amount of the investment.
The last piece of America’s College Promise aims to hold states responsible for the
success of community colleges. States are expected to contribute around a quarter of the funding
necessary to supply full tuition for all students. The purpose of this is to create buy-in for states
so that they “commit to continue existing investments in higher education; coordinate high
schools, community colleges, and four-year institutions to reduce the need for remediation and
repeated courses; and allocate a significant portion of funding based on performance, not
enrollment alone” (The White House, Office of the Press Secretary).
From the success of state and local involvement in the movement for universal high
school education, this portion of the policy will be crucial to its success in tailoring programs to
local needs. Thus, it is fitting that states and localities take responsibility for the policy’s success.
As in the case of universal high school education, states such as California, Iowa, Kansas, and
Nebraska, were able to eventually lead in universal high school education because they were
agricultural areas “thickly dotted with small towns and villages” where the movement found the
most support and where there were a large number of school districts compared to the population
(Goldin & Katz, 701). This speaks to the importance of regional buy-in and the economic
sustainability of investing in local resources that return to the community. The importance of
40
investing the local economy is also evidenced in the Georgia HOPE program, in which the
scholarship was able to help academically successful students stay in in Georgia. As illustrated in
both cases, success for local education institutes is highly dependent on local buy-in, which this
policy correctly tries to incentivize.
Conclusion
America’s College Promise is promising. The literature and examples from Georgia
HOPE and universal high school education establishes a compelling role for federal educational
subsidies. However, the plan is currently enrollment focused, which is supported by a strong
economic case, but weakened by the empirical realities. The capacity for community colleges to
absorb the projected demand increase and the low program completion rates will decrease the net
positive effect of the tuition subsidy. Overall, the most promising aspect of the plan is its
proposal to incentivize community colleges to adopt programs like CUNY’s ASAP, to increase
program completion rates. Quality improvements in the form of better classroom experiences
and student support services will be key in closing the education attainment gap rather than
enrollment. Lastly, although the literature supports community colleges as a useful channel for
decreasing the education gap in America, the policy would make the most impact by focusing on
supporting transfers to four-year universities, where they stand to gain the most by eventually
earning a Bachelor’s degree.
41
Works Cited
Auguste, Byron G., Bryan Hancock, and Martha Labossiere. "The Economic Cost of the US
Education Gap." The Economic Cost of the US Education Gap. McKinsey & Company,
June 2009. Web. 04 Apr. 2015.
Blundell, Richard, Lorraine Dearden, Costas Meghir, and Barbara Sianesi. "Human Capital
Investment: The Returns from Education and Training to the Individual, the Firm and the
Economy." Fiscal Studies 20.1 (1999): 1-23. Web.
Boggs, George R. "Democracy’s Colleges: The Evolution of the Community College
America." American Association of Community Colleges, n.d. Web.
Bok, Derek Curtis. Higher Education in America. N.p.: n.p., n.d. Print.
Chen, Victor. "The Georgia HOPE Scholarship." Policy Perspectives 11.1 (2009): n. pag. Web.
“Community College Financing: Strategies and Challenges ." Community College Financing:
Strategies and Challenges. American Association of Community Colleges, n.d. Web. 04
Apr. 2015.
Cornwell, Christopher, and David B. Mustard. "Georgia's HOPE Scholarship and Minority and
Low-Income Students: Program Effects and Proposed Reforms." Journal of Human
Resources (n.d.): n. pag. Web.
Ehrenberg, Ronald G. "American Higher Education in Transition." Journal of Economic
Perspectives 26.1 (2012): 193-216. Web.
"FACT SHEET - White House Unveils America's College Promise Proposal: Tuition-Free
Community College for Responsible Students." The White House. The White House, 09
Jan. 2015. Web. 04 Apr. 2015.
42
Goldin, Claudia, and Lawrence F. Katz. "Human Capital and Social Capital: The Rise of
Secondary Schooling in America, 1910–1940." Journal of Interdisciplinary History 29.4
(1999): 683-723. Web.
Goldin, Claudia Dale., and Lawrence F. Katz. The Race between Education and Technology.
Cambridge, MA: Belknap of Harvard UP, 2008. Print.
Heller, Donald E., and Kimberly R. Rogers. "Shifting the Burden: Public and Private Financing
of Higher Education in the United States and Implications for Europe." Tertiary
Education and Management 12.2 (2006): 91-117. Web.
Heller, Donald E. "The Effects of Tuition and State Financial Aid on Public College
Enrollment." The Review of Higher Education 23.1 (1999): 65-89. Web.
Hendel, Igal, Joel Shapiro, and Paul Willen. "Educational Opportunity and Income Inequality."
Journal of Public Economics 89.5-6 (2005): 841-70. Web.
Kaplin, William. EXPANDING STUDENT ACCESS TO AND SUCCESS IN HIGHER
EDUCATION: CONFRONTING SYSTEMIC INEQUITIES* (n.d.): n. pag. Stetson
University College of Law. Stetson University College of Law Working Paper Series.
Web.
Lingwall, Jeff. "Compulsory Schooling, the Family, and the "Foreign Element," Evidence from
the United States, 1880-1900." Carnegie Mellon University Heinz College (2010): n. pag.
Web. 22 Apr. 2015.
McConnell, Campbell R., and Stanley L. Brue. Contemporary Labor Economics. New York:
McGraw-Hill, 1989. Print.
Mullin, C. M., & Phillippe, K. (2013, January). Community college contributions (Policy Brief
2013-01PB). Washington, DC: American Association of Community Colleges.
43
Orfield, Gary, and Chunmei Lee. "Gary Orfield, Ph.D." — The Civil Rights Project at UCLA.
University of California, 15 Jan. 2005. Web. 17 Oct.
Schultz, Theodore W. "Investment in Human Capital." The American Economic Review LI
(1961): n. pag. Web.
United States. Department of Education. Higher Education. Fiscal Year 2016 Budget Request.
N.p.: n.p., n.d. Web. 20 Feb. 2015.
Winston, Gordon C. "Subsidies, Hierarchy and Peers: The Awkward Economics of Higher
Education." Journal of Economic Perspectives 13.1 (1999): 13-36. Web.
44